Huawei to Upgrade Vodafone Networks

Chinese telecommunications equipment supplier Huawei Technologies said it has signed a five-year contract with Vodafone Group to help upgrade the U.K.-based carrier’s networks in 15 countries in Europe and Africa. Neither Huawei nor Vodafone disclosed the value of the deal.

The contract, announced Thursday, is part of Vodafone’s £7 billion ($11.7 billion) network investment program called “Project Spring,” and Huawei is one of its multiple suppliers. Last month, two major European telecom-gear suppliers—Sweden’s Ericsson and Finland’s Nokia Solutions & Networks—said they each signed a five-year contract with Vodafone as part of Project Spring.

Huawei’s latest deal with Vodafone, which is already one of its clients, is yet another indication of the Chinese supplier’s solid presence in the European telecom industry. Huawei, the world’s second-largest telecom-equipment supplier by revenue after Ericsson, generates about two-thirds of its sales outside China, and Europe is its largest overseas market.

Huawei’s effort to expand its European operations is all the more important given that its equipment has been effectively banned the U.S. since a congressional report in 2012 concluded that the Chinese supplier’s gear could pose a national-security threat. The U.S. government has also asked South Korea to make changes to its wireless networks and make sure sensitive communications won’t use Huawei equipment.

For the past few years, Huawei has been ramping up its investment in Europe while aggressively seeking major contracts. In October, TDC, Denmark’s largest telecom carrier, announced a $700 million deal to replace its existing Ericsson equipment with Huawei’s gear.

“The overall environment in Europe is friendly and the situation is stable,” Ken Hu, Huawei’s deputy chairman and rotating chief executive, told The Wall Street Journal in January on the sidelines of the World Economic Forum in Davos.

Flush with cash following the $130 billion sale of its 45% stake in Verizon Wireless, the biggest U.S. wireless operator, Vodafone is spending to upgrade its network to meet demand for download speed and quality across the world. The £7 billion investment spread over the next two years, to March 2016—focused on third-generation and fourth-generation network capacity, as well fiber-optic-cable rollout and store upgrades—is expected to be slightly front-loaded this year.

Vodafone has earmarked £3 billion for mobile networks just in Europe, where the company makes the lion’s share of its revenue and profit, but where recession-hit markets and a squeeze on consumer spending have rattled sales.

Vodafone is currently in the first phase of the overall plan, which is focused on mobile networks.

“In the telecoms market, you have to make some big bets and make some significantly large-volume investments, “ said Gartner analyst Katja Ruud. “We certainly don’t see any reason for [Vodafone] to delay [deploying its investment]. They are trying to leverage their investment as soon as they can and as best they can.”

Analysts also say fresh investment across Europe’s fragmented telecom sector cannot be separated from strategies to expand through acquisitions.

“Some of Europe’s largest companies, such as Vodafone, Deutsche Telekom and Telefónica, have rebuilt headroom for acquisitions by selling assets. Furthermore, the need to invest in next-generation infrastructure could spur a phase of consolidation,” said a Standard & Poor’s report Wednesday.

Ms. Ruud added: “Spending [resources] in the most optimal way, sometimes that will be part of network build-up, partnerships with other service providers for equipment and site sharing and part of it will also include some potential M&A activity.”